Hungarian prime minister unfriends IMF on Facebook

BUDAPEST, Hungary - Hungary's prime minister has long had a testy relationship with the International Monetary Fund -- and on Thursday he used Facebook to unfriend the agency and reject its allegedly tough loan conditions.

Prime Minister Viktor Orban said in a video message on his official Facebook page that Hungary could not accept pension cuts, the elimination of a bank tax, fewer public employees and other conditions in exchange for an IMF loan that other officials have said could be about $18.9 billion.

The IMF's list of conditions, Orban said, "contains everything that is not in Hungary's interests." Orban's announcement took the markets by surprise, in part because just a day earlier he had said loan negotiations with the IMF and the European Union were going according to schedule and both sides were willing to reach an agreement.

The forint, Hungary's currency, initially weakened 1.5 percent against the euro after Orban's Facebook video, while the benchmark index of the Budapest Stock Exchange fell from over 18,000 points to below 17,700 before closing at 17,949 points.

Orban said his government would work on an "alternative negotiation proposal" because both he and his Fidesz party agreed that a deal under such IMF demands would be unacceptable.

The IMF did not immediately respond to a request for comment Thursday but at the end of loan talks in July, the Washington-based fund outlined some views about Hungary's economy.

The IMF said Orban's government needed to focus on "measures to encourage labor participation, advance competition, reform loss making state-owned enterprises, notably in the area of transport, and put in place a regulatory level playing field for all companies." Experts said only the European Central Bank's announcement Thursday of a new bond-buying program meant to ease Europe's debt crisis and ensure the future of the joint euro currency prevented Hungary's currency and stock market from falling more.

"There have been many U-turns in the IMF story in the past, surprises are kind of part of the game already," analyst Gabor Ambrus of London's 4Cast said about Orban's latest comments.

In late 2008, under a socialist government, Hungary became the first EU country to receive an IMF-led bailout. The Orban government, however, decided not to renew the loan agreement in 2010 so it could implement its economic policies without IMF control. But the increasing weakness of the forint, the Hungarian currency, and investors' growing loss of trust in the country's economy made the government abruptly change its mind late last year, when it again sought IMF help.

The Hungarian economy is in a recession and contracted an annual 1.2 percent during the second quarter of 2012, while the country's annual inflation rate stood at 5.8 percent in July, the highest in the EU.

Still, Hungary has been able to keep financing itself through bond sales. The government has repeatedly said it only wants a precautionary loan from the IMF for emergency funds.

"The market movements will be the main influence on what the government does," said analyst Zoltan Arokszallasi of Erste Bank in Budapest. "If the state auctions of forint-denominated bonds are unsuccessful -- and this is not at all the case right now -- the IMF deal will become more important."